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By Michael B. Baker
Extended stay hotel companies, facing occupancy and rate declines less steep than those seen in the overall hotel industry, continue to pursue aggressive growth plans for both their established and newly introduced extended stay brands.
Supply growth for extended stay hotels has been particularly rapid in the past year. The number of rooms increased 6.6 percent from the end of the first quarter of 2008 to the end of the first quarter of 2009, the highest first-quarter growth in seven years, according to research firm The Highland Group.
"Extended stay demand, on an annual basis, has never gone down, though I'm pretty sure it will this year," said Mark Skinner, a partner with The Highland Group. "The above-average supply growth has doubled the effect on occupancy."
U.S. demand dropped year-over-year by 4.6 percent for the first quarter of 2009, not as steep as the 8 percent drop seen in the hotel industry overall, the group reported. Extended stay rates for the quarter were down 5 percent, occupancy down 9.9 percent and revenue per available room was down 14.4 percent.
One major supplier this month filed for bankruptcy protection. Extended Stay Hotels, which operates the midprice and economy Extended Stay Deluxe, Homestead Studio Suites and Crossland Economy Suites brands, filed for Chapter 11 about two years after being acquired by real estate investor and hospitality industry novice The Lightstone Group (BTNonline, April 18, 2007). The firm cited massive debt and softening demand in its filing.
Most extended stay suppliers reported corporate travel usage was down as companies have put some development projects on hold and shortened the trip lengths for some business travelers, said Richard Flores, marketing director for Larkspur Hotels & Restaurants, which includes the extended stay Larkspur Landing brand.
"In 2006 and 2007, you could get away with having one major account, and you were running 80 percent occupancy with a good rate," Flores said. "You can't count on a Google to fill them up anymore."
The hotels have been able to make up some of the difference by targeting new types of business: college sports teams, small meetings and association travel, he said. In the meantime, some of the core business that fuels extended stay hotels will continue, said Bill Duncan, global head of brand management for Hilton Hotels Corp.'s extended stay brands.
"Companies still have to generate revenue," Duncan said. "If you pull things like new project launches off the road, you're not going to make any more money."
Robert Radomski, vice president of brand management for InterContinental Hotel Group's extended stay brands, said the down economy also has increased certain types of business travel to extended stay properties. "We are seeing growth in liquidations, and those liquidation teams are the sort of thing that brings more extended stay business," he said.
Hoteliers also said the down economy is a time to emphasize the value of extended stay properties, which tend to bring lower travel ancillary costs, particularly because they are equipped with kitchens to cut down on meal costs and include amenities like high-speed and wireless Internet—including at upscale and even luxury tiers—as a part of the rate.
Historically, the extended stay segment has tended to bounce back slower than the hotel industry at large. It could rebound more quickly this time, however, especially if federal stimulus spending goes toward a large number of construction projects, which would fuel demand, The Highland Group's Skinner said.
Despite the overall demand slowdown, suppliers said they're not pulling back on their pipelines. Duncan said Hilton's Homewood Suites brand already has opened 13 properties this year and plans to open a total of 40 by the end of the year. It also plans to open 40 to 50 hotels annually for the next few years after that, he said.
IHG is equally bullish on its upscale Staybridge Suites and midprice Candlewood Suites extended stay brands, Radomski said. Staybridge currently has 155 hotels and Candlewood has 213, and both have about the same amount in their pipelines, poising them to double in size in the next few years, he said.
Newer entries to the market are planning for growth as well. Corporate housing supplier Korman Communities in recent years has positioned its AKA brand to compete as a luxury extended stay hotel and now has eight locations, in Manhattan, Philadelphia, Washington, D.C., and White Plains, N.Y., said Korman COO Randall Cook. The company wants to continue to expand its presence as well. "We're definitely a niche operation, with a furnished apartment with hotel services and amenities, but there's a lot of demand for it," Cook said.
Starwood Hotels & Resorts also recently launched its upscale extended stay Element brand, intended as a sister to the Westin brand, and CEO Frits van Paasschen said the company is eager to expand.
"A lot of people are launching brands right now, and this is a down cycle," van Paasschen said. "In the long view, we see this as an opportunity for us, so we're going to continue to grow with Element."
Hilton, meanwhile, this year announced the launch of its first midprice extended stay brand, Home2 Suites, and Duncan said the brand has about 22 properties approved and another 40 to 50 working deals. He does not expect the economic slowdown to affect the nascent brand, he said.
"We did research to consult corporate travel managers to get a product they would want to be a part of their programs, and their feedback was great," Duncan said. "Our developers feel this is a great complement to their existing brands, and many already had a piece of land sitting next to one of our sister hotels and have been trying to figure out how to use it."
The industry might not be done with brand introductions, either. Choice Hotels International CEO Stephen Joyce, whose company already operates the midprice MainStay Suites and Suburban Extended Stay brands, said he would like to add an upscale extended stay brand to the company's portfolio. Because those properties are almost entirely new builds, that might be a bit down the road, he said.
Joyce, however, said the brands have strong potential for expansion overseas, particularly in Europe, which is largely untapped for extended stay projects. "The extended stay base in the United Kingdom and Germany is enormous," he said. "It's one of the bright spots in the industry."
Staybridge last year opened its first properties outside of the Americas and now has properties in the United Kingdom and Egypt and plans to add more, Radomski said. Duncan said Homewood is working on opportunities both in the United Kingdom and India, and Cook said he'd like to see AKA have a London presence as well.
Gilles Pelisson, CEO of Accor Hospitality, said his company's Adagio extended stay brand is an indication of that untapped demand. "We are now beyond France into Germany and are getting farther into Europe," Pelisson said. "It's amazing to see the potential that is out there."
—Nielsen Business Media
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Extended Stay Tiers Push Growth As Corporate Demand Drops
June 29, 2009By Michael B. Baker
Extended stay hotel companies, facing occupancy and rate declines less steep than those seen in the overall hotel industry, continue to pursue aggressive growth plans for both their established and newly introduced extended stay brands.
Supply growth for extended stay hotels has been particularly rapid in the past year. The number of rooms increased 6.6 percent from the end of the first quarter of 2008 to the end of the first quarter of 2009, the highest first-quarter growth in seven years, according to research firm The Highland Group.
"Extended stay demand, on an annual basis, has never gone down, though I'm pretty sure it will this year," said Mark Skinner, a partner with The Highland Group. "The above-average supply growth has doubled the effect on occupancy."
U.S. demand dropped year-over-year by 4.6 percent for the first quarter of 2009, not as steep as the 8 percent drop seen in the hotel industry overall, the group reported. Extended stay rates for the quarter were down 5 percent, occupancy down 9.9 percent and revenue per available room was down 14.4 percent.
One major supplier this month filed for bankruptcy protection. Extended Stay Hotels, which operates the midprice and economy Extended Stay Deluxe, Homestead Studio Suites and Crossland Economy Suites brands, filed for Chapter 11 about two years after being acquired by real estate investor and hospitality industry novice The Lightstone Group (BTNonline, April 18, 2007). The firm cited massive debt and softening demand in its filing.
Most extended stay suppliers reported corporate travel usage was down as companies have put some development projects on hold and shortened the trip lengths for some business travelers, said Richard Flores, marketing director for Larkspur Hotels & Restaurants, which includes the extended stay Larkspur Landing brand.
"In 2006 and 2007, you could get away with having one major account, and you were running 80 percent occupancy with a good rate," Flores said. "You can't count on a Google to fill them up anymore."
The hotels have been able to make up some of the difference by targeting new types of business: college sports teams, small meetings and association travel, he said. In the meantime, some of the core business that fuels extended stay hotels will continue, said Bill Duncan, global head of brand management for Hilton Hotels Corp.'s extended stay brands.
"Companies still have to generate revenue," Duncan said. "If you pull things like new project launches off the road, you're not going to make any more money."
Robert Radomski, vice president of brand management for InterContinental Hotel Group's extended stay brands, said the down economy also has increased certain types of business travel to extended stay properties. "We are seeing growth in liquidations, and those liquidation teams are the sort of thing that brings more extended stay business," he said.
Hoteliers also said the down economy is a time to emphasize the value of extended stay properties, which tend to bring lower travel ancillary costs, particularly because they are equipped with kitchens to cut down on meal costs and include amenities like high-speed and wireless Internet—including at upscale and even luxury tiers—as a part of the rate.
Historically, the extended stay segment has tended to bounce back slower than the hotel industry at large. It could rebound more quickly this time, however, especially if federal stimulus spending goes toward a large number of construction projects, which would fuel demand, The Highland Group's Skinner said.
Despite the overall demand slowdown, suppliers said they're not pulling back on their pipelines. Duncan said Hilton's Homewood Suites brand already has opened 13 properties this year and plans to open a total of 40 by the end of the year. It also plans to open 40 to 50 hotels annually for the next few years after that, he said.
IHG is equally bullish on its upscale Staybridge Suites and midprice Candlewood Suites extended stay brands, Radomski said. Staybridge currently has 155 hotels and Candlewood has 213, and both have about the same amount in their pipelines, poising them to double in size in the next few years, he said.
Newer entries to the market are planning for growth as well. Corporate housing supplier Korman Communities in recent years has positioned its AKA brand to compete as a luxury extended stay hotel and now has eight locations, in Manhattan, Philadelphia, Washington, D.C., and White Plains, N.Y., said Korman COO Randall Cook. The company wants to continue to expand its presence as well. "We're definitely a niche operation, with a furnished apartment with hotel services and amenities, but there's a lot of demand for it," Cook said.
Starwood Hotels & Resorts also recently launched its upscale extended stay Element brand, intended as a sister to the Westin brand, and CEO Frits van Paasschen said the company is eager to expand.
"A lot of people are launching brands right now, and this is a down cycle," van Paasschen said. "In the long view, we see this as an opportunity for us, so we're going to continue to grow with Element."
Hilton, meanwhile, this year announced the launch of its first midprice extended stay brand, Home2 Suites, and Duncan said the brand has about 22 properties approved and another 40 to 50 working deals. He does not expect the economic slowdown to affect the nascent brand, he said.
"We did research to consult corporate travel managers to get a product they would want to be a part of their programs, and their feedback was great," Duncan said. "Our developers feel this is a great complement to their existing brands, and many already had a piece of land sitting next to one of our sister hotels and have been trying to figure out how to use it."
The industry might not be done with brand introductions, either. Choice Hotels International CEO Stephen Joyce, whose company already operates the midprice MainStay Suites and Suburban Extended Stay brands, said he would like to add an upscale extended stay brand to the company's portfolio. Because those properties are almost entirely new builds, that might be a bit down the road, he said.
Joyce, however, said the brands have strong potential for expansion overseas, particularly in Europe, which is largely untapped for extended stay projects. "The extended stay base in the United Kingdom and Germany is enormous," he said. "It's one of the bright spots in the industry."
Staybridge last year opened its first properties outside of the Americas and now has properties in the United Kingdom and Egypt and plans to add more, Radomski said. Duncan said Homewood is working on opportunities both in the United Kingdom and India, and Cook said he'd like to see AKA have a London presence as well.
Gilles Pelisson, CEO of Accor Hospitality, said his company's Adagio extended stay brand is an indication of that untapped demand. "We are now beyond France into Germany and are getting farther into Europe," Pelisson said. "It's amazing to see the potential that is out there."
—Nielsen Business Media
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